While pursuing long-term economic reform and diversification, Saudi Arabia needs to show that the kingdom is an attractive, business-friendly place; yet recent moves have worried investors over the business environment, and raised some concerns over the impact on oil policy.

The death of Saudi journalist Jamal Khashoggi and skepticism regarding Riyadh’s official explanation of how it happened have cast a shadow over Saudi Arabia’s economic reform plans. Many high-profile figures have decided to stay away from this week’s Future Investment Initiative meeting in Riyadh, including U.S. Secretary of the Treasury Steven Mnuchin, International Monetary Fund head Christine Lagarde, oil historian Daniel Yergin, and the chief executive officers of Uber, Blackstone, and JP Morgan.

However, others such as Andrew Liveris, former head of Dow Chemical, and Siemens CEO Joe Kaeser still plan to attend. For the economy, two questions arise. Will the Khashoggi affair torpedo foreign investment in the kingdom, essential for the success of its reform effort? And will Saudi Arabia’s all-important energy sector, and its strategic global role, be affected?

The last two years have seen an effervescent boost in Saudi Arabia’s international image. Crown prince Mohammed bin Salman’s U.S. tour, the engagements with tech companies and venture capitalists such as Masayoshi Son of SoftBank, and the launch of an ambitious economic and social reform program highlighted the kingdom as the next investment hotspot.

Vision 2030 has so far been headlined by high-profile events, including the “Davos in the Desert” Future Investment Initiative of October 2017, and announcements of mega-initiatives such as the proposed initial public offering of Saudi Aramco, the $500 billion new city of Neom, the ascent of the Public Investment Fund and its purchase of stakes in Uber and Tesla, and the 200-gigawatt solar joint venture with SoftBank.

Yet several of these ambitious plans, lacking the necessary foundations, have been delayed. But what is important for the success of the major initiatives and, even more so, the future Saudi economy, is the dull, unflashy work of economic and regulatory reform. This would give investors, foreign and domestic, more confidence that their projects can be secure and profitable. Surmounting the conundrum Saudi Arabia faces, as only a few petro-states have done, divides into three parts.

The country needs to diversify its economy. More specifically, it needs sources of economic growth that are not dependent on the oil industry, or on the government recycling oil earnings. Even an expanding oil sector cannot satisfy the economic aspirations of the country’s young and growing population, while it continues to expose Saudi Arabia to volatility. And in the not too distant future, action on climate change and the rise of electric vehicles promise some combination of falling oil prices and shrinking or at least stagnating demand.

So, an increasing share of government revenue and national exports have to come from non-oil sectors, which means developing internationally competitive industries and tradable services that generate enough of a surplus to provide material tax revenue. The private sector needs to become the engine of job creation for Saudi nationals.

Second, the government has to overcome the tension between these objectives. Raising government revenue and cutting the budget deficit means cutting subsidies, government salaries, and state jobs, and increasing taxes, at the risk of a recession and domestic discontent. Creating more private-sector employment for Saudi citizens has so far involved local content provisions, charges on expatriates, and mandatory quotas for Saudi employment.

But these moves at the same time make business less profitable and so deter foreign direct investment. From a multinational’s perspective, outside the petroleum sector, Saudi Arabia is an interesting but not essential market. Its economy is about the same size as Switzerland’s, and the non-oil part of that, about 56 percent, is a bit smaller than Austria’s. The true non-oil sector, not funded by oil earnings, is smaller still; 25 percent of the “non-oil” economy consists of government services. Because of trade barriers and political problems, it does not provide much access to the rest of the region, in the way Mexico does to North America.

Therefore, the third component has to be to make the kingdom an attractive, business-friendly place, both for international and Saudi investors. This is a complex task, the key components of which include improving the quality and speed of bureaucracy and decision making; boosting transparency; enhancing education to meet the needs of a modern knowledge-driven economy; reducing counterproductive regulations, such as those relating to visas; introducing a modern bankruptcy law (that came into force in August); pursuing predictable and non-politicized business policies; upgrading the quality of life for high-skilled expatriates; making the economy more competitive by reducing the footprint of the state and large incumbent business groups; pushing ahead with privatization of assets such as airports, desalination plants, flour mills, and the national football league; and lowering regional trade barriers. Inevitably, some of these will spur opposition and bureaucratic foot dragging.

And whatever their other justifications, some recent moves by the Saudis, such as the boycott of Canada, the detention of prominent business figures accused of corruption, threatening retribution to businesses that stay away from the Future Investment Initiative, and the long delay in the Aramco IPO, create concerns over the business environment.

If some Western firms, particularly those that are consumer-facing and high profile, are deterred by concerns over Saudi Arabia’s human rights record, Russian and Chinese investors will step in. However, there are big gaps in what they can provide, making them insufficient backers of Vision 2030 on their own.

While pursuing long-term economic reform and diversification, Riyadh still has to keep its all-important energy sector in good working order. This will remain attractive for investment under almost any conditions. Joe Kaeser of Siemens, a major supplier of power-generation equipment, said, “If we skip communicating with countries where people are missing, I can just stay home.” Earlier in October, French supermajor Total inked a deal for front-end engineering design of a $5 billion petrochemical plant in Jubail, in a joint venture with Aramco.

Recent events have raised some concerns over the impact on oil policy. There were suggestions the United States might impose sanctions over the killing of Khashoggi. The reputational fallout is not helpful at a time the Saudis are campaigning against a “NOPEC” bill that would enable the U.S. government to file antitrust suits against OPEC members, albeit it is unlikely to come to pass. Members of the U.S. Congress may also be encouraged to revisit restrictions on arms sales to Saudi Arabia that support its war effort in Yemen.

In response to the sanctions threats, the head of Al Arabiya news network, Turki Aldakhil, wrote an opinion piece suggesting retaliation in the oil sector. While Aldakhil is known to be close to the Saudi royal family, it was stressed that the article did not represent an official position, although the measures he mentioned included a cut in exports that would send oil prices rising to $100 or $200 per barrel, and switching to pricing oil in the Chinese yuan. The market did not take the suggestion seriously, yet Saudi Minister of Energy, Industry, and Mineral Resources Khalid al-Falih took the unusual step of publicly reassuring international markets that “Saudi Arabia is a very responsible country, for decades we used our oil policy as [a] responsible economic tool and isolated it from politics,” telling Russian news agency TASS that there was “no intention” of repeating the 1973 oil embargo. President Donald J. Trump has several times tweeted to pressure the oil exporters’ organization over what he has seen as too-high oil prices.

It is very unlikely that any U.S. sanctions would be stringent enough to warrant such an escalation as responding in the oil sector. The key to Saudi Arabia’s long-time geopolitical position has been its role as a stable, reliable player in international oil markets. It stepped in with extra production during the 1990-91 Iraqi invasion of Kuwait and the 2003 U.S. invasion of Iraq.

The one time it departed from this policy was in leading the 1973 embargo of many Arab petroleum producers on the United States following the October War of Egypt and Syria against Israel. The first oil shock that resulted gained Saudi Arabia and the other big oil exporters an enormous windfall, helping to build their modern infrastructure. But it tainted them for long afterward as unreliable suppliers, caused worldwide recession, and led to strenuous efforts by the industrialized countries to diversify away from oil in general and Middle East oil in particular. The resulting countershock led to almost two decades of Saudi economic stagnation and rising debt.

Saudi Arabia has a strong interest in maintaining moderate oil prices. It wishes to keep global demand strong and fill in for losses from its adversary, Iran, to support the U.S. sanctions policy. It has to supply a growing global network of its own oil refineries in the United States, China, India, Japan, and South Korea, while a closer relationship with China would put it under even more pressure to be a reliable supplier. In the longer term, it has to avoid catalyzing the development of non-oil technologies or the further expansion of petroleum production in higher-cost areas. There are already concerns that the surge in oil prices since August, on the back of falling Iranian exports, is hitting demand.

So, oil markets have largely shrugged off the risk: Brent prices, having risen to $86 per barrel around the time the news of Khashoggi’s disappearance broke, have now fallen back to around $80 per barrel. The current events, in isolation, do not seriously threaten world oil nor Riyadh’s long-term reform plans. But the key for now is that Saudi Arabia responds with mature reflection and a proper assessment of its core interests.

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